The Transaction Process
Submitting an Offer
Once the buyers have decided to write an offer, a 9 page Sales Contract will be filled out by the buyers with their desired terms. The buyers need to put down “Earnest Money” that serves as consideration for the sellers to go into contract with the buyers and take their house off the market. This Earnest Money can be of any monetary value, but the common amount ranges from $1000 to 1% of the sales price. This deposit will then be credited back to the buyers toward their closing costs and prepaid expenses at the close of escrow.
Negotiation
The sellers will then do one of three things; accept the offer as written, counter the buyers offer on a seller’s counter offer form, or reject the offer. This can take some time especially if a bank is involved. Short sales require more patience because the bank’s acceptance is required to move forward. Using the right documentation to protect the principals in the transaction is highly advised.
Home Inspection
It will be up to the buyers to decide if they want a home inspection of the property. Buyers’ lenders can require a Pest & Dry Rot inspection to be cleared before they lend on the property. Full home inspections can be in the $400 price range, but it is advised to have a qualified professional to investigate one of the largest investments in your life. Inspection contingencies can often take a couple weeks to investigate and negotiate repairs with the seller.
Repairs
After the inspection the buyers have the choice of buying the property as is, terminating the agreement based on the findings of the inspection report, or trying to negotiate with the seller to remedy some, if not all, of the repairs. The sellers have the choice to agree or to decline the request. Once the repairs are completed, then waiting on the appraisal results is usually one of the last steps to closing the loan.
Reinspection
Once the repairs have been completed, the buyers may need to have the inspector to reinspect the property to ensure the repairs were completed. This usually costs around $100. This may be an option as some banks may accept a licensed contractor to sign off on the report verifying that the repairs have been completed.
Appraisal
The appraisal usually needs to be ordered within a few days after a fully executed Sales Contract has been signed. The appraisers’ job is to “justify the mutually agreed price between the buyer and the seller”. They are working for the lender’s best interest, but unfortunately they are hired and paid by the buyer. This fee usually costs around $450.
Appraisal Review
Once the appraisal has been delivered to the lender, the underwriter will review the appraisal to protect the bank. They have the right to accept or decline the appraisal based on their information of the local market and the subject property.
Loan Documents sent to Escrow
Once the appraisal has been accepted, the buyer’s lender will send loan documents to have the buyers sign at the Escrow Company. Escrow is a non-interest third party who prepares the documents for the buyer and seller to sign and then records the proper documents with the proper county jurisdiction. Signing usually takes a day or two before closing. Once documents are signed, they are sent from Escrow back to the underwriter for final review.
Escrow Closing
Escrow will receive wiring instructions from the lender along with funds to record the transaction with the county. Once recording numbers are filed, the transaction has closed. The buyer then takes possession of their new property!
Contingencies
The main common contingencies in a Sales Agreement are buyers financing, home inspection, preliminary title report, appraisal, and the disclosure period. These contingencies ensure that the buyers have time to investigate the property and are fully aware of the risks involved in their purchase. If the buyers decide to terminate the agreement based on a contingency, their earnest money is to be returned to the buyers. However, any money spent on inspections or appraisal shall not be refunded. It is critical to schedule the events in an organized manner to minimize the risk of losing earnest money.
Common Buyer Costs
- Earnest Money Deposit – $1000
- Home Inspection – $400
- Reinspection – $100
- Appraisal Fee – $450
All costs are just estimates and should not be used as quotes.
